What happens if a taxpayer is one day late responding to an IRS letter? We may soon have an answer, after the U.S. Supreme Court today heard oral argument in Boechler, P.C. v. Commissioner.
Though the IRS has no pity for taxpayers missing deadlines by a day, it by no means feels that it should be subject to the same rules. With the tax filing season about to start on January 24, the IRS still has (as of December 23) six million unprocessed individual returns from tax year 2020. Amended returns are taking 20 weeks to process, and victims of identity theft are waiting an average of 260 days for a response. The National Taxpayer Advocate reported that in 2020, the IRS answered only 24 percent of phone calls placed to it. The only way to get the IRS’s attention quickly is to send it money — checks to the IRS are being cashed on a timely basis.
In the Boechler case, the taxpayer is a small law firm in North Dakota that received a letter from the IRS in June 2015 saying they failed to file a copy of their W-2s with the Social Security Administration in 2012. (The IRS uses the records to compare with IRS Form 941 to spot discrepancies.) The firm didn’t reply to the IRS. The IRS responded with a $19,250 non-response penalty.
The firm disputed the penalty through IRS processes, and the IRS appeals office sent them a letter dated July 28, 2017 ruling against them and starting a 30 day clock for the taxpayer to go to Tax Court. On August 29, the taxpayer filed a petition with the Tax Court, one day past the deadline. The IRS claims that by filing one day late, the taxpayer has forfeited their case in Tax Court. The taxpayer argues that the Tax Court has the discretion to waive the deadline in equitable circumstances, while the IRS argues the Tax Court cannot do so.
The case turns on a statute, 26 U.S.C. 6330(d)(1):
Petition for review by Tax Court. The person may, within 30 days of a determination under this section, petition the Tax Court for review of such determination (and the Tax Court shall have jurisdiction with respect to such matter).
While the statute confers jurisdiction to the Tax Court over the IRS’s determination, the question is whether the parenthetical and its use of the word “matter” instead of “determination” means the Tax Court keeps or loses jurisdiction if a petition is not filed on time. The U.S. Court of Appeals for the Eighth Circuit sided with the IRS, while the U.S. Court of Appeals for the D.C. Circuit sided with the taxpayer.
NTUF’s Taxpayer Defense Center, joined by the National Federation of Independent Business, filed a brief supporting the taxpayer and focusing on one disturbing argument advanced by the government: the idea that because governments depend on tax revenue, any action that lets taxpayers off the hook on deadlines should be prohibited as it would disrupt revenue collection. Our brief pushes back on this “tax exceptionalism” to say that tax law isn’t special and equitable relief should apply just as much in tax as anywhere else. Further, even if tax is special, that should mean taxpayers deserve more due process rights, not fewer, given the wide scope and enormous power of tax collecting authorities. “The door should not be closed on courts’ discretion when statutes do not prohibit it,” we concluded.
The justices at oral argument seemed, on the whole, skeptical of the government’s position:
Chief Justice John Roberts was the only justice signaling support for the government’s position, suggesting the statute is clear, jurisdictional, and that untimely filers are out of luck.
Justice Sonia Sotomayor suggested instead that it was logical that the statute not dismiss taxpayer cases since the wording here is different from other statutes that take away jurisdiction. She also observed that the next section of the law, which takes away the Tax Court’s ability to enjoin levies in untimely filing, would be unnecessary if the government’s reading is correct.
Justice Stephen Breyer referenced Black’s Law Dictionary and the Code of Justinian to argue that the default rule is that deadlines can be waived in equity and was skeptical of the government’s argument that the statute clearly means the opposite.
Justice Samuel Alito had tough questions for both counsel. He asked if the ability of taxpayers to pay what they allegedly owe and then sue for refund in district court, bypassing Tax Court, was relevant. Melissa Arbus Sherry of Latham & Watkins, arguing for the taxpayer, said that pre-existed the Tax Court but the whole point of the law establishing the Tax Court was to give taxpayers the chance to dispute assessments without having to pre-pay. Alito questioned that the statute’s parenthetical stripped jurisdiction, saying twice that parentheticals usually mean a change in subject.
Justice Neil Gorsuch said he believed there were three possible readings of the statute, with two helping the taxpayer and one helping the government, and showing that the statute is not clear.
Justice Elena Kagan asked if it was realistic to assume Congress meant to strip jurisdiction not by clearly stating so but by sentence placement and use of parentheticals.
Justices Brett Kavanaugh and Amy Coney Barrett both referenced the “clear statement rule” requirement that statutes be clear, and asked why the government should prevail if Congress wrote a statute capable of multiple readings? Kavanaugh further said that the solution for the government is for the Treasury to ask Congress to pass a law simply stating, “The Tax Court shall have jurisdiction only if it’s filed within 30 days.” “I don’t see why that’s so hard.”
Justice Clarence Thomas asked if the IRS ever agrees to waive the deadline and also how many cases would be affected if the Court rules against the government. Jonathan Bond of the Solicitor General’s office, arguing for the government, answered that about 300 cases a year are dismissed on jurisdictional grounds. Sherry, arguing for the taxpayer, noted that only some of those are dismissed due to lack of timely filing, but referenced several pending cases flagged by tax clinics where low-income taxpayers had missed their deadline due to Postal Service delays or the IRS mailing to the wrong address.
A strange moment occurred when government counsel explained how the 30-day deadline would affect soldiers serving overseas. The attorney explained that the IRS cross-references all taxpayers against Defense Department data on who is serving overseas and can therefore make accommodations for them. Chief Justice Roberts and Justice Barrett seemed especially incredulous (and rightly so!) that the IRS is accurately tracking all taxpayers to know whether they are serving overseas or not.
One must always be careful about concluding too much from questions and comments in oral argument, since justices use the opportunity to play devil’s advocate, probe implications of possible outcomes, or signal each other. But aside from Chief Justice Roberts, the Court seemed skeptical of the government’s position. As Justice Barrett put it, “Let’s say I think the government’s position is more plausible but not a slam dunk.” In that case, where Congress has failed to make a clear statement establishing a harsh rule, why should the government prevail?
Let’s hope they do. The decision will be announced by summer 2022.
Links:
Docket: https://www.supremecourt.gov/docket/docketfiles/html/public/20-1472.html
Argument Transcript: https://www.supremecourt.gov/oral_arguments/argument_transcripts/2021/20-1472_6j37.pdf
NTUF Summary: https://www.ntu.org/foundation/detail/one-day-late-ntuf-challenges-harsh-irs-rules
NTUF/NFIB Joint Brief: https://www.ntu.org/library/doclib/2021/11/20-1472-National-Taxpayers-Union-Foundation.pdf
SCOTUSblog Summary: https://www.scotusblog.com/2022/01/a-tax-deadline-missed-by-one-day-leads-to-a-showdown-over-equity-jurisdiction-and-grammar/